Petronet LNG, the nationís biggest liquefied natural gas buyer, has reported an over 57% drop in December quarter net profit.

SummaryPetronet's net profit in Oct-Dec fell to Rs 136 crore from Rs 319 crore in the same period a year ago.

While the troubles in Kochi may weigh on Petronet LNG Ltd's earnings over FY14-16E, the 33% correction in the share price in the last one year appears to have factored this in.

Imports at the larger 10-mt Dahej terminal have been resilient, while its risk profile has improved, with Petronet pre-selling nearly all the expanded 15-mt capacity slated for start-up in 2016. With Petronet trading at 10x P/E on FY15E EPS, which we estimate could double by FY18E, the risk-reward looks favourable. We thus upgrade our rating to overweight from equalweight, but leave our DCF-based price target at R140, as we roll over to March 15 and incorporate additional TOP contracts, which offset our near-term EPS cuts.

Our TP implies 35% potential upside from current levels. Petronetís 5-mtpa, cR4,500-crore Kochi terminal may continue to struggle for some time. Gailís KKBM evacuation pipeline may now be completed only by mid-2015, limiting utilisation, while the high LNG price from Kochi could limit offtake, even if evacuation issues are resolved. We cut FY14-16E EPS by 11-22%, but believe that the stockís 33% fall in the last one year factors in the headwind.

Encouragingly, operations at the more important 10mt Dahej site remain resilient, with utilisation of +95% for FY14E.